First Published 28th April 2016

TABB Group Research study details how capital constraints, MiFID II rules surrounding research unbundling, and new dark trading rules are transforming European equity markets.

New York and London - The European
equities markets have been held hostage to pending MiFID II
regulation, but are quickly starting to transform, despite the
absence of clarity on the impending mandate, a TABB Group
Research study concludes.

The study found that a powerful combination of regulatory threat,
economics and technical innovation is redefining the core of the
European equities brokerage value proposition, including how
institutional investors obtain research, capital and trading
support. Although the changes are unfolding in incremental steps,
institutional investors are already changing the way they are
managing their businesses. TABB Group expects the changes will
have a dramatic impact on European equities markets.

Compiling its annual review and forward look on the challenges
facing European equity trading and market structure, TABB Group
has released its "European Equity Trading 2016: The Liquidity
(R)evolution" report, highlighting the findings from interviews
with head traders at European institutional investors regarding
how they are adjusting to this massive equity market
transformation.

"The continued delay in the implementation of MiFID II is
frustrating for industry participants, but it is not the only
challenge facing European equity trading," says TABB's Rebecca
Healey. "Broader economic and technical fundamentals continue to
take their toll on investment banks by pushing the industry
toward wholesale change. Exiting of business strategies,
declining return on equity, and reduction of sell-side capital
are creating a vacuum and opening up a larger debate over how the
industry will evolve."

According to TABB, there will be broad-reaching effects,
including: how research is consumed and produced, how clients are
serviced, which brokers are being used, how capital is being
deployed, which algorithms are being used, and which firms will
win and lose overall. Some of the key findings from TABB's study
include:

While European equity commissions recovered in 2015, expectations
for an increase in commissions in 2016 are low. Only 13% of large
asset managers anticipate their commission wallet will grow.

The fight for wallet share is intensifying with the top five
brokers accounting for an average of 56% of total commissions
paid. While commissions to the top five are concentrating, where
firms are positioned within the top five has become critical as
there is a 19% commission differential between the top and the
fifth broker and a 12% commission swing between the top two.

Fundamental shifts in brokerage relationships are underway with
just 25% of buy-side firms still using bundled commissions to pay
for research through the traditional manner.

TABB explains that European asset managers face a daunting surge
in complexity and accountability while simultaneously losing
their traditional methods of execution. Greater unbundling, loss
of client facilitation of order flow, and forthcoming regulation
will inevitably force a rethink of current methods of accessing
liquidity and for many, will sever the cord to traditional
brokerage relationships.